Suppose your company is undergoing a merger, and employees are offered a bonus for promising to stay on for a certain period of time—perhaps three or six months—during the rocky transition period. Do you have to pay the full bonus to an employee who goes out on family leave for some of that period? A federal court has addressed this question and whether it’s legal to have employees sign releases of their claims under the Family and Medical Leave Act.
Stay Bonus Reduced Because Of FMLA Leave
When Wesley Jessen Corp. was acquired by Novartis AG, certain Wesley employees were offered a $30,000 “stay bonus” as an incentive to continue their previous job functions during the transition period. The bonus agreement stated that employees had to remain “actively employed” with the company for six months.Valerie Dierlam accepted the stay bonus, remaining employed through the six-month period but taking 12 weeks of approved FMLA leave in the middle of it. When calculating the bonuses, Wesley reduced Dierlam’s bonus to reflect the 12 weeks of leave.
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Employee Signs Release Of FMLA Claims, Heads To Court
Dierlam left the company at the end of the stay period and signed a separation agreement releasing claims against Wesley, including FMLA claims.Nevertheless, Dierlam sued Wesley, contending it was illegal to lower her bonus based on her FMLA leave. Wesley asked the court to dismiss the case because Dierlam had signed the release of her FMLA rights. The company also argued that the bonus reduction was appropriate because Dierlam wasn’t actively employed when she was on family leave, as the bonus agreement required.
FMLA Waiver Invalid
The court sided with Dierlam. The court explained that federal rules implementing the FMLA state that employees cannot waive, nor may employers induce employees to waive, their FMLA rights. Therefore, the waiver Dierlam signed was invalid.
Bonus Can’t Be Cut
The court went on to rule that reducing Dierlam’s bonus violated the FMLA. The general rule is that FMLA leave cannot result in lost pay or benefits that an employee would be entitled to if they didn’t take the leave. And a Department of Labor regulation specifies that when a bonus is based on attendance, an employer must ignore any family leave that a worker has taken when determining bonus earnings. The court likened the stay bonus in this case to an attendance bonus. The bonus agreement didn’t require Dierlam to meet a production goal or quality standard and simply contemplated the nonoccurrence of an event—that is, Dierlam’s absence from work. Thus, ruled the court, because Dierlam fully qualified for the bonus in all other respects except her family leave, she was entitled to the full bonus amount plus interest and attorneys’ fees.
Avoid Bonus Traps
Although this ruling is from a federal court in Illinois, it will most likely apply in California. Be sure to review bonus agreements and policies to make sure that employees taking family leave don’t receive fewer benefits or less favorable treatment than workers taking other unpaid leave. And never refuse to pay a bonus based on attendance or a stay period because an employee has taken FMLA leave.Note, however, that bonuses based on productivity can be trimmed back for family leave. If a worker doesn’t produce enough to qualify for a productivity bonus, regardless of the reason, you can pay a smaller amount that reflects the reduced output.